Work remains before Children’s pact complete

AUSTIN — An agreement “in principle” to end the El Paso Children’s Hospital bankruptcy was announced Monday night, but a court hearing Tuesday demonstrated that there’s some distance to go before the agreement becomes final.

University Medical Center of El Paso, the hospital’s biggest creditor, must deposit $7 million with the court to demonstrate its earnestness before a trial slated for Oct. 22 is vacated. Also, a joint plan must be filed — possibly by the end of the week — and a joint disclosure statement must be made, possibly by Oct. 19.

Then all of that must be approved by the court.

“It’s a very delicate balance,” Patricia Baron Tomasco, an attorney for Children’s Hospital, told U.S. Bankruptcy Judge H. Christopher Mott. “There’s a lot of political give and take in this case that’s caused things to fall apart after they’ve been agreed to.”

Children’s Hospital, which has lost money since it opened in 2012, filed for bankruptcy protection May 19. UMC says Children’s now owes it more than $106 million.

After a bitter bankruptcy case and related lawsuit, the attorneys on Tuesday didn’t release many details of the agreement.

Tomasco said that it proposes fully repaying all the hospital’s creditors and cutting the rent the hospital pays UMC from $869,000 per month to $500,000.

She also said that it resembles an arrangement UMC proposed to the court and parts of which Children’s used in the restructuring plan it filed on Sept. 16.

However, there are important differences between the two.

For example, the UMC plan says that the current Children’s board would be removed and replaced by one selected at the sole discretion of the UMC board. Under the UMC plan, the UMC board could remove any Children’s board member, without cause, at any time.

Children’s proposed to change the plan to say that the new Children’s board would be appointed with the input of the existing board and that members could only be removed for cause.

Also, Children’s sought to remove a provision requiring the hospital’s CEO to consult with and seek input from the UMC CEO.

Those and other differences apparently have been resolved and the terms of the deal will be made public when the joint plan is filed, Mott said.

In a related development, UMC CEO Jim Valenti said Monday that he would not seek renewal of his contract when it expires in May.

Valenti had become a flashpoint for the Children’s board and some of its doctors, while many involved with UMC and county government have blamed intransigence on the part of the Children’s board for the hospital’s financial crisis. So the removal of Valenti and the Children’s board appear to be part of the deal preliminarily struck Monday.

Lou Strubeck, an attorney for UMC, made a comment that appeared to underscore the fragile nature of that deal.

“There’s a certain amount of distrust that continues on … both of these sides,” he said.

The parties will next appear in court at 11 a.m. next Tuesday in El Paso, in part to consider Children’s request to hire ADP to handle payroll services. It will not consider whether to hire an investment banker as requested by Children’s earlier this month.

Judge Mott encouraged the lawyers and the parties to keep working toward finalizing the settlement in the meantime.

“I really want to see you get this over the goal line,” he said.

Marty Schladen may be reached at 512-479-6606; mschladen@elpasotimes.com; @martyschladen on Twitter.

Sam Legate and other advocates get University Medical Center (then Thomason Hospital) to study the feasibility of stand-alone pediatric hospital in El Paso, the largest city in the United States without one. The study is completed in 2004, but Thomason's shaky finances preclude moving forward.

Nov. 2007

$120M bond passed

Voters pass a $120 million bond to build and equip a Children's Hospital over the objections of Tenet Healthcare, which paid Republican firebrand Michael Quinn Sullivan $100,000 to lead a PR fight against the bond.

2011

First structure completed

The building that will house El Paso Children's Hospital is completed on the UMC campus, just east of Downtown.

Feb. 14, 2012

Hospital opens

The 122-bed Children's Hospital opens to great fanfare; a $10.3 million annual lease between UMC, a governmental entity, and Children's, a private corporation, is signed later that month.

2012-2013

Problems arise

Financial problems begin almost immediately. Some of the trouble is attributable to changes in government reimbursement rules. But in a sworn deposition, Children's CEO Jim Valenti says the Children's board departed from the original vision of operating a "lean clinical machine." In court testimony, Legate, the former president of the Children's board, says the board merely followed Valenti's lead.

2014

Mediation begins

A mediation between UMC and Children's over the hospital's deepening debt to UMC fails. An attempt to form a strategic partnership with Children's Medical Center of Dallas also fails.

Feb. 2015

AlixPartners

Children's board hires restructuring consultant AlixPartners to run the hospital. Its employee, Mark C. Herbers, is appointed chief executive officer, chief operating officer and chief restructuring officer at a rate of $745 an hour.

Spring 2015

Legate resigns

Legate resigns as chairman of Children's board. He later says that he did so because he didn't have the time to guide the hospital through bankruptcy.

May 19, 2015

Jackson Walker hired

Children's Hospital hires law firm Jackson Walker and files for bankruptcy protection. It files a related lawsuit claiming that it owes no rent and that UMC overcharged it for services. Post-filing fees for law firm and AlixPartners total almost $500,000 per month. Four members of the hospital's board resign in the wake of the bankruptcy filing.

June 2015

More mediation

U.S. Bankruptcy Judge H. Christopher Mott orders another mediation between Children's and UMC. As with its predecessors, it fails.

July 16, 2015

Herbers deposed

July 16, 2015 - In a sworn deposition, Children's CEO Herbers admits that despite claims that UMC committed fraud by overcharging, he and the hospital staff had never compared prices to see if that was true.

Aug. 5, 2015

Watchdog objects to plan

The U.S. Bankruptcy Trustee, a federal watchdog, objects to Children's plan to hire a $50,000-a-month investment banker to help find a partner for the hospital. The trustee said fees for the banker were unexplained and prospects for a partnership seemed dubious.

Aug. 13, 2015

Judge slams Children's board

Judge Mott slams the Children's board, its lawyers and its consultants. He says they haven't developed a strategy to exit bankruptcy "other than just litigate with UMC and hope for the best."

Sept. 3, 2015

Herbers testifies

Herbers testifies in a court hearing over Children's claims that it never owed rent. He admits that the hospital included $27 million in unpaid rent in cost reports to the U.S. Centers for Medicare and Medicaid Services. The reports are used to help determine Medicaid reimbursements and the hospital's legal arguments possibly expose it to more than $20 million in Medicaid liability.

Sept. 8, 2015

Children's ordered to pay rent

Mott rules that Children's must pay rent, pending a final ruling after an Oct. 22 trial. The ruling further undermines the finances of an institution that is expected to run out of money in December or January.

Sept. 16, 2015

Restructuring plan "unworkable"

Children's Hospital files a restructuring plan. The state of Texas joins others in calling it patently unworkable.

Sept. 18, 2015

More negotiations

Children's, UMC and the El Paso County Commissioners Court enter into yet another round of negotiations to see if they can solve their differences out of court. Several deadlines pass and talks that would allow Children's more time to find an outside partner fail.

Sept. 27, 2015

Talks resume

In a court filing, Children's says it's in talks with a partner that would result in the hospital moving and leaving empty a building taxpayers built for it.

Sept. 29, 2015

New phase begins

Children's, UMC and the county start a new phase of talks, this one aimed at making UMC Children's strategic partner.